Market on 'subdued trajectory'

ScotiaBank delivered some less-than-optimistic news to mortgage brokers and those who depend on the housing industry for their livelihood.

“Residential investment stalled last year, as affordability constraints tempered home sales, and builders scaled back the number of new developments,” Adrienne Warren, senior economist for ScotiaBank wrote in her Industry Trends report Wednesday. “We expect the sector will remain on a more subdued trajectory over the next several years, imposing a modest drag on output growth.”

The housing industry has long been a major contributor to the Canadian economy; with new contruction, renovations, transfer costs and legal and appraisal fees contributing $128 billion last year along, according to Warren.

ScotiaBank, however, is forecasting resale activity to drop over the course of the next two years, which will contribute to a softening housing market.

As a result, construction – especially in the multi-unit sector -- is expected to slow and prices are forecasted to hold steady.

“At the same time, population growth and relatively healthy labour market conditions suggest sales should hold near their 10-year average,” Warren wrote. “Softer sales should in turn slow house price appreciation, with greater downside price risk in the more amply supplied high-rise segment than for single-family homes.”

In my opinion, the Scotiabank forecast for softening real estate market is just a matter of time. The real estate market have on-going growth since June 1996, a minor blip in Jan-June 2009 and resume the growth in later 2009. Interest rates have been very low since 2010 and when economy is slowly recovering, interest rates will increase in near future, early to mid 2015 has been long expected. As a rule of thumb, when interest rates increase, real estate activities and pricing will drop.